Whether it’s taking action to boost scores on employee satisfaction surveys or working to build a more candid culture, most founders strive to infuse transparency into the DNA of their startups. But when the more specific topic of compensation transparency comes up, some start to shift uncomfortably in their seats, perhaps out of a fear that they’ll be pressured to share everyone’s salary in a spreadsheet for all to see.
But for bethanye McKinney Blount, these concerns miss the mark. “You may not know it, but you’ve actually already introduced some level of pay transparency. Because at a minimum, if you’ve got people on your payroll, they at least know how much they make,” she says. “What people don’t understand is that comp transparency is a spectrum — sharing every person’s salary across the company is a way to shed light on how employees are compensated, but it’s not the only one.”
As a two-time founder and a seasoned engineering leader with stints at Reddit, Facebook, Linden Lab and EMI under her belt, Blount has seen this misunderstanding around comp rear its head time and time again. And in her experience, this hesitation to pull back the curtain on paychecks and think more deliberately about a compensation philosophy tends to cause problems down the line as startups scale. That’s why her latest venture, Compaas, focuses on helping companies tailor their comp strategies, including the level of pay transparency that matches their specific stage and unique culture.
In this exclusive interview, Blount tackles the thorny questions startups need to think through in order to calibrate comp transparency to the right setting. She makes the case for opening up and gives a rundown on the menu of transparency options to choose from, sharing the scripts and strategies founders can use to avoid stepping on landmines when discussing this topic with their teams.
CLEARING THE AIR: COMMON COMP TRANSPARENCY MISCONCEPTIONS
To take fear and uncertainty out of the equation, Blount starts conversations with founders by debunking misunderstandings around pay transparency. Here, she level sets on the phrase itself, puts more detail around the road to achieving it and digs deeper into why startups should consider introducing it.
The more nuanced definition and the long journey to achieving it
“When you start talking about pay transparency, the first thing everyone thinks is ‘I’m going to know how much everybody makes.’ I think a better way to frame it is ‘I’m going to understand why I’m paid what I’m paid and how I can increase my comp,’” says Blount. “It’s about making sure employees understand their current reality and see a career development path in front of them.”
Comp transparency isn’t about sharing everyone’s salary in a spreadsheet. It’s about giving people a clear line of sight into why they make what they make.
“It’s also not a simple decision to have it or not. You can’t just say ‘we’re going to be transparent.’ It’s not a light switch you can flick on or off. It’s a journey that plays out over years and it involves a set of considerations that change depending on the life stage of your company,” she says. “There’s so many other questions: What's the foundation of compensation at the company? How has it evolved? What would you have to do as an employee in order to develop and increase your pay? How are raises determined? What about other parts of compensation like bonuses and equity? In essence, you need to do the legwork of figuring out how much pay transparency to have and then identify a path for getting there, all while making sure it’s not a thrashy experience for your team.”
The right — and wrong — reasons for introducing pay transparency
According to Blount, founders are also often misguided in their thinking on why introducing pay transparency might be a good idea.
“You have to dig deeper to uncover why you’re doing it. Implementing new comp practices is no small feat, and you need to begin with a clear sense of why it matters to your company. It’s not just about what has or hasn’t worked at other places — it’s about how those successes and failures apply to your startup,” says Blount. “Often someone comes in and says, ‘I read about this other company that tells employees how much everybody makes and I think we should too.’ But that’s not really a good enough reason. Comp transparency needs to exist in service to another goal inside the company, not as a standalone initiative.”
Pay transparency isn’t an end in itself — and it’s certainly not something to undertake just because other companies are doing it.
For Blount, the move to introduce comp transparency is usually rooted in a desire to build faith in the company. “Because comp is so foundational, it's one of the best ways that a startup can help instill trust and connection with the company. But you need to figure out who you’re trying to cultivate trust with — what’s your goal?”
And in her experience, that gambit to build trust is usually anchored in the same handful of objectives:
Boosting recruiting. Startups can rely on pay transparency as lever to help out in a competitive talent market by making offers more attractive. “Candidates often point to lack of comp transparency as one of the flags that makes them peace out on an offer,” says Blount. “Salaries are still seen as such a murky, black box, so there’s always a competitive advantage in being very clear about why an offer is structured the way it is.”
Improving retention. Of course, existing employees also have a vested interest in understanding their pay grade. “Telling them clearly and consistently what their pay is based on and what their career ladder looks like is a key way that you can foster a culture of candor and mutual commitment,” says Blount.
Building a brand. Increasingly, startups are also looking to cultivate a reputation for being exceptionally innovative in processes or culture as a differentiator to set themselves apart from bigger competitors. “Having a more aggressive transparency model may fit in with your brand,” says Blount. “We see that with companies like Buffer. They were born that way — pay transparency is a natural extension of their ethos.”
Keeping up with compliance. “This is one that we don't like to talk about very much. It’s a little scary and not at all sexy,” says Blount. “But there is a minimum level of pay transparency that, depending on your location, has to happen. For example, in 2018 California began requiring that employers share a pay scale for open positions upon request. Sales orgs also can require special handling around being clear how variable comp is done,” she says.
After laying out the reasons to consider introducing more pay transparency, Blount then walks founders through the process of identifying the ones that fit in with their startup. “I always tie it back to what resonates most with your culture,” she says. “Because compensation is culture, period. It’s how you pay your people and it’s where the rubber hits the road. It’s the metric you can’t cheat."
And while that may seem like a lot of importance to place on a simple number, Blount thinks comp can hold the weight. “It’s naive to think that you're just going to give people money and they're not going to feel everything that’s attached to it. Pay is incredibly personal and emotionally charged. It directly affects how we live our lives and how we support our families. And whether we want to admit it or not, to employees, pay feels like a reflection of how much the company values them.”
THE RUNDOWN: ALL OF THE NOTCHES ALONG THE COMP TRANSPARENCY CONTINUUM
Once a startup has decided to put more of their compensation cards on the table, the conversation quickly turns to what exactly should be revealed — and how much is too much. And from black box to Buffer, there’s a wide range of points along the comp transparency spectrum.
“On one end, you can be super transparent and open. And on the other, you’re incredibly flexible, to the point that you might be very arbitrary and ad-hoc. There are pros and cons to each,” says Blount. “Being very open can make you more disciplined and thoughtful about each change because everyone’s watching. But some people want the freedom to experiment. They want to have the flexibility to go after a candidate they really fall in love with or to reward a key person in the company in a special way.”
In Blount’s experience, most founders want to land somewhere in the middle of that range. To help startups find their sweet spot, she walks through every degree of pay transparency to consider, from most opaque to most transparent:
Keep it secretive and flexible (and often arbitrary)
“This is the starting block for most small companies. Pay decisions are off-the-cuff and comp is entirely shrouded in mystery. This of course gives founders a lot of wiggle room for key hires,” says Blount. “But it also can create a culture of fear and a lack of trust. You have almost a cult of personality around the founder, where candidates and employees are forced to just trust this one person to be good to them. So I would think carefully about whether you really need that and when to move away from it — this is never sustainable in the long-run.”
Put up scaffolding behind the scenes
The first slide up the pay transparency scale comes when those early ad-hoc offers give way to something more formal: levels are acknowledged and associated with salary ranges based on market data. While this may seem like a major hurdle to clear, Blount is quick to note that levels are introduced almost as soon a company grows past its founding team — whether founders realize it or not.
“I hate to break it to you, but if you're paying two people differently right now, you already have levels. So this phase is about owning that and putting a little more rigor behind it,” she says. “Those levels can remain entirely hidden from the rest of the team at this stage, outside of the founders, HR and finance. It’s very common to not tell your team the details, but rather give them a sense of what you try to do with comp, explaining that you use data and generally try to target a certain percentage of the market rate,” says Blount.
Unveil individual levels
The next leap forward is when employees learn their own current levels, but not the salary ranges that go along with them. And while managers know everyone’s levels, others are left to speculate or gossip about where everyones fall along the ladder. “Most companies make it to this stage, but there’s a big drop off afterwards,” says Blount. “I’m an advocate for taking the next step of tying levels to ranges or sharing levels across the org, but it’s not something everyone is comfortable with.”
Share all levels and form rungs on the career ladder
At the next stop on the pay transparency journey, employees learn everyone else’s level. “This is a big step because even if you're not sharing a cash number for levels, you're still sharing a relative seniority category that people are pegged against,” says Blount. “By this point, you should also have a rubric that clearly explains expectations and how to move from one level to another — otherwise, it’s just an arbitrary number and employees will be left wondering ‘Why am I a three?’”
Reveal personal salary ranges
To take it one step further, share with employees not just how much they make and their level, but the salary range that goes along with it.
“This is a big deal because it provides clarity around seniority and placement within the salary band. Even if all I know is that I’m in the top, middle or bottom third, it’s a powerful data point for career pathing,” says Blount. “For example, if I'm at the top of the band and I want to make more money, I should be thinking hard about how I'm going to work with my manager to go for a promotion. If I'm in the bottom of the band, I have some room in front of me to deepen within the role or start thinking about things like performance bonuses. This sets up different and more effective conversations with my manager.”
But this pay transparency phase is far from the norm. “It’s the edge of the cliff where you see this huge drop off in the number of companies doing it, but my prediction is that this approach will become more of the new normal because of the change in California law,” she says. “Eventually some individuals will find out the range anyways for compliance reasons and people talk, so there’s a power in controlling the narrative and being upfront about the range.”
Paint the full picture — and hint at what’s to come
To go even deeper in the realm of comp transparency, startups can consider putting together total comp statements. “They include information about cash bonuses, a target value for you stock, how much the company pays for your health insurance and your gym membership, the whole picture,” says Blount. “They’re pretty rare because it takes a lot of labor to produce, but it's a way to be wonderfully transparent.”
For those looking to go the extra mile, Blount notes that some companies give employees more insight into their growth path by clueing them in to the next salary range above them as well. “It’s extremely experimental — probably fewer than 5% of tech companies are doing this, but I like where this trend is heading. You see what the opportunity is in front of you and it makes comp more aspirational,” she says.
Share (almost) everything
Far out in the deep waters of pay transparency, the levels for every person and the ranges that go along with each level are shared with all employees. “That's very uncommon, it’s not a mainstream thing to do at all,” says Blount. “If knowing what the relationship is between their title and a salary range is pushing the edge, then knowing everyone’s levels and ranges is a bleeding edge. It’s very rare.”
Lay it all on the table
The endpoint on the pay transparency continuum is learning exactly how much everyone in the organization makes. “Buffer of course is the classic example of this, and they take it even further by throwing the spreadsheet of everyone’s salaries up on their blog, which makes it interesting, of course, when you think that random people on the internet will know how much you get paid,” says Blount. “This is seems cutting edge for private tech companies, but it’s existed in nonprofits and some parts of government for basically forever because it all has to be disclosed.”
FINDING YOUR FIT: THE TOOLKIT FOR SETTING A PAY TRANSPARENCY TARGET
Much like an array of subtly different paint swatches, the various shades of pay transparency make it somewhat overwhelming for a fledgling startup to choose the right one. That’s why Blount’s work focuses on steering startups to their ideal place on the spectrum.
“Whether it’s just you and a co-founder or you’ve already got a team of 30, the advice is the same: moving beyond where you are now will require maturity, process and work,” she says. “It’s less about the starting point and more about where you’re heading.”
Pay transparency is always going to be an aspirational journey. You’re going to start wherever you are, but you can always become more transparent over time.
For early teams trying to decide which end to gravitate towards, Blount recommends taking these considerations into account:
Remember mission only goes so far. “As a startup founder, your early hires will join solely for the mission. But that’s not going to work forever. As the team grows, candidates will be more focused on title and comp,” Blount says. “Think about your future target hires and how much flexibility you’re going to need to land them. For example, how senior are the people you’re going to need to make your company work? Not just this month, but in your next few phases as well.”
Think about functional diversity. Consider whether the team you’re building will be functionally heterogenous or homogenous. “If you’re going to need a powerful inside and outside sales org, an engineering team and a product group, recognize that those are really different organizations. The teams may not be filled out evenly and there are different incentives; it will be hard to do complex yet consistent comp with the resources you have. Maybe that’s not the time to be super transparent,” says Blount. “On the other hand, if you’re building more of self-service product and your team will be mostly engineering with a handful of customer service reps, then you can afford to be more formulaic and dial up the transparency early on.”
Carve out flexibility for emerging roles. For startups dealing with cutting edge or multidisciplinary roles, it can be hard to rely on market data. “I’ve received market data from my HR partners before that did not reflect the reality that I was living in — I knew that I couldn’t hire somebody at that supposedly market rate,” says Blount. “This used to happen a lot with dev ops roles. Comparative salary info for more novel or niche roles can be hard to benchmark. So if you're building a transformational technology, it’s advantageous to give yourself a little more wiggle room.”
Spend your tokens wisely. Beyond recruiting needs, Blount recommends that founders consider where to place their energy as they’re getting started. “Companies only have so many ‘innovation tokens’ — you may not want to spend yours on a radical new approach to comp,” she says. “Maybe you're a second-time founder and you want to push the envelope on the mechanics of running a business so you try a very transparent comp approach. But if you’re innovating elsewhere, such as in your sales model or how you’re building your product, then you may not want to experiment too much in HR.”
For the teams that aren’t ready to commit one way or another, Blount offers a few essential practices to build a solid foundation that can be a springboard for increasing transparency later on:
Start with data. “The minimum threshold or baseline — where I would say every startup should be ‘born’ — is this: Use market data to build your compensation philosophy,” says Blount. “Every good experiment requires data and the same should be true of your early pay practices. I like the partnership between Connery Consulting and Hiringplan, but there are lots of other resources out there such as AdvancedHR, Payscale and Radford. It’s also important to learn from each recruiting experience — what did you have to do to close somebody?”
Sketch out levels and ranges in your diary. Blount is a big fan of capturing levels and ranges from the start, even if they are for the founder’s eyes only. “Articulate what the levels and targets could be to start. You don’t have to share them with anybody, but it’s great insight for your strategy,” she says. “It’s also a way to communicate with your future self and stay honest. It’s like a diary entry or a trail of breadcrumbs that capture your thinking at the time. For example, if you hired someone thinking he was very senior, but you fast forward six months and he’s still not delivering, then the fact that you wrote that down means ‘future you’ has to be honest about that.”
Set up comp review checkpoints. For early-stage teams that aren’t comfortable delving into salary ranges or specific levels, there’s another tactic that can demonstrate a commitment to pay transparency. “Doing comp review for everyone once a year and looking at market data sets consistency and gives employees something more predictable to rely upon,” says Blount. “It also pulls out some of the emotion attached to comp, because you know you can look forward to that discussion as opposed to having no idea what’s going on.”
CHANGING IT UP: THE GUIDE TO MAKING PAY TRANSPARENCY MOVES
After firming up a targeted pay transparency destination, the next step is getting out there and changing comp practices. But for Blount, the sensitive nature of this topic demands that founders tread carefully, landing each step forward with intention.
“Don’t make a splashy announcement that you’re going to be transparent about comp until you can back it up. Measure where you are first,” says Blount. “Gathering internal data and market targets is a hard exercise; it’ll start out as spreadsheet wrangling at best. Most companies won’t realize how messy their HR data is until they actually go in and try to do this. So my advice is to start the project quietly and just grind out and do the work — it will take more time to get the house in order than you think.”
If startups want to make a move to be more transparent, the first thing they need to do is get their shit together.
After gaining a better understanding of where things currently stand, start plotting out a plan of attack, using Blount’s guidelines as stepping stones:
Rising tides lift all boats — and what goes up, can’t come down.
Assembling data will almost certainly uncover lumpy patches in how employees are compensated; the next move is to fix anything that’s broken.
“If you discover compliance issues, address those first. If you find a batch of employees that are below your new market targets, make a plan to bring them into your intended ranges in a way that's fair and representative of their experience, seniority and the work they do,” says Blount. “Look at stock distributions and any big gaps in cohorts of people hired around the same time. Are there individual outliers who are making much less but are still excellent performers?’”
An area that’s less straightforward, however, is dealing with the folks that are overpaid. “If you discover that you’re overpaying someone, don’t try to adjust salary in the opposite direction — that never works,” says Blount. “It’s never easy, but instead have a candid conversation so you’re both aware of where things stand. You could say ‘You're actually above our market target, so if you want more, let's talk about a promotion and how we can work together so you can move into a new role with a higher income.’”
Take it slow and save the numbers for later.
Even if parsing through the data reveals that many people are below range, startups may not have the means or the desire to bump everyone up at once. “That may be too much of a record scratch moment,” says Blount. “Just make a plan for how to get there. You have at least one cycle to do it or you can go off-cycle by announcing that you’re doing a market adjustment that will only affect some people.”
More broadly, Blount notes that companies just dipping a toe into comp transparency for the first time may need to approach the entire process in stages.
“Levels, in particular, evoke thoughts of status and prestige — that’s why I’m a fan of staying at the stage where everyone knows their own level for a while before moving to a system of transparent levels for everyone. For example, if your team has never even known their levels, diving right into talk of pay ranges is too much, too fast. Split out the levels conversation from talk of hard numbers,” she says. “Each change in comp transparency is its own little mini-shock to the system, so as you push toward new heights of transparency, always remember that your organization is a collection of human beings at the end of the day.”
Sharing levels for the first time means having conversations with folks who didn’t know where they stood before. That’s a recipe for a bunch of pissed off people, 100% of the time.
COMMUNICATING THE CHANGE AND THE SENSE BEHIND IT
When startups are ready to talk about their endeavors to upgrade pay transparency, communicating clearly — and thoughtfully — is paramount.
“I used to work for a small tech company where the way you got raises was that the leadership would decide and money would just show up one day in your bank account. There was never any indication that it was coming,” says Blount. “And if the company was doing well, instead of an announcement about bonuses, everyone’s paychecks would just be double deposited. They thought it was very fun way to keep things fresh. But the whole team was really thinking, ‘Is this a bank error? Should I spend this or not?’ It was very confusing and not the least bit fun.”
Announcements about introducing review cycles, leveling or revealing salary bands are big company moments and should be treated as such. Here are two of Blount’s strategies for nailing those changes in comp communications:
Prep managers beforehand — and use this all hands script.
“Your team needs to hear about this from you at an all hands, not in an email. And you better not drop this on the managers at the same time as everyone else — that’s a jerk move,” says Blount. “A lot of managers are uncomfortable talking about comp. They need some context and training so that they're ready to have those hard one-on-one conversations with their direct reports afterwards.”
To help founders set the stage when opening up about comp with their teams, Blount shares a sample all hands presentation script that can be customized:
We’ve been thinking a lot about how we’re growing as company and how we can better support you as the employees. We’re going to continue to give you benefits such as this lovely office and free lunches, but something that really matters a lot to people — and one of the most important things we can do — is clarifying not just what's in your paycheck but how we came to that number. How are we deciding what new hires make? What is the regular cycle on which we review compensation and what does it look like for you?
So here's where we are: As a company, we worked with outside vendors and we talked with our recruiters to understand what the market looks like. Generally speaking, we aim to be 70% of the market target right now. And what that means is that we pay on the higher end for comparable companies — we want to be competitive and create competitive offers — but we don't pay the very most. We [do / do not] negotiate on offers.
Now for you, that means a couple of different things. First, during our next compensation review, which we're going to start in March [after performance reviews are done] because we [do / don't] use performance as part of raises. Everybody's going to see a change in their paycheck. [Some of it will reflect your performance-related raise.] If you got a promotion, one, you're awesome, and two, there will be a raise associated with that. There will also be a market adjustment, where we're going to make sure that everybody is at least inside our target range, because we want to make sure that you're here for the long haul.
We want to make sure that everybody's here together, and we want to be fair to you. Here's what you can expect moving forward: Next year, we're going to review this again. We’ll do a review of general market trends in September, and if we see that there are people who are really off, we might make an adjustment then. That won't be for everyone. It'll just be for places where the market's changed a lot. [And then we'll do performance-driven raises again next March.]
Stay consistent and keep your team updated.
Openly discussing comp isn’t a one-and-done internal comms push, especially if a startup is inching along the pay transparency continuum and looking to unveil levels or ranges.
For example, a year later, leaders can hold a follow-up all hands presentation to update the team on progress and next steps, following another sample script from Blount:
In an effort to bring more clarity to how we do comp, we've made some adjustments to get everyone into our target ranges.
We've decided that it's really important for you to understand not just that you're in market range, because we've already talked to you about that, but what the ranges actually are. We want you to know at least what your range is, with the goal of eventually working towards you knowing what the ranges are in the career path in front of you.
As a tool to help us communicate this out, we’re going to build total compensation reports for each of you. On [insert date], we’ll send out letters telling you how much you're going to make in the next pay cycle. Those letters will include information about your benefits and what your stock grants look like, in addition to new information about what your range is and where you are in that range.
That's important because we want you to understand if you're near the top of your range and you’re thinking that you want a raise. It gives you lots of time to be able to have conversation with your manager about working toward a promotion.
BRINGING IT ALL TOGETHER
Although talking about compensation is never comfortable, startups shouldn't clamp up when it comes to shedding light on how the numbers make their way onto those paychecks. Remember that it's about giving team members a line of sight into why they make what they make, not about posting everyone’s salary on a digital bulletin board. While it can be a tool to gain a leg up in recruitment and tether current employees to the organization, pay transparency isn’t an end in itself or something to pursue because it seems trendy — take care to dial into the pay transparency setting that fits in with your existing culture. Do some forward planning to chart course for your journey to greater pay transparency, as it’s not likely to happen overnight. Deep-dive on data to bring stragglers up to your target ranges and slowly peel away other layers to reveal more about pay practices, whether that’s through sharing levels, ranges or total compensation reports. Finally, communicate openly and consistently in in-person, company-wide forums, always equipping managers with the tools to navigate tough comp conversations.
“At the end of the day, whatever the specifics of your comp policy — whether you opt for the tried-and-true or blaze new trails — the most important thing you can do is embrace the opportunity to give each employee clarity and comfort about their place in the org,” says Blount. “When comp transparency efforts are executed well, it gives employees a sense of, ‘Here's where I am, here's how I got where I am and here's where I can go next.’ And that's the best thing you can do with transparency of any kind inside your company.”
Image by Avosb / Getty Images. Photography by Bonnie Rae Mills.